Any new business requires extensive thought and planning, but when it’s an extension of an existing farm enterprise, contracting really is a balancing act. We offer some top tips to help you get it right.
The first consideration is an obvious one – what machinery do you need and how should you structure it? Michael Read, managing director at Burden Bros, a John Deere dealership and contracting business in Kent, suggests looking at what kind of work needs doing, and on what land or soil type. “Will you need a lot of tech, tracking or monitoring? We could put all the bells and whistles on but if you won’t use them, it’s dead money. And bigger horse power is not always better.”
Be as up-to-date with technology as you can afford to be.
However, scrimping on specification can also be the biggest downfall, he warns. “Be as up-to-date with technology as you can afford to be.” It’s important to recognise idle time as this can be a common blind spot. And don’t scrimp on maintenance. “Ensure servicing is done at the right time – after that point you’re at risk.” Setting out a realistic repair budget should also be a priority.
An extended warranty is a no-brainer, says Mr Read. “Machinery is your number one asset – if it’s not running, it’s not earning. We encourage our customers to take the monthly payment option which includes the machine, an extended warranty, a maintenance plan and tech support.”
Costing out a machine needs to factor in multiple aspects, he explains. “Consider the impact on yield and productivity, depreciation, cost of running and maintenance, fuel usage, ground work return, compaction and damage. It’s about looking at the return on investment and whether you’re leveraging the technology.” Working with a good dealership is an integral part of any contracting business – without functional machinery there is no business.
Working with a good dealership is an integral part of any contracting business.
The most important thing between a contractor and dealer is honesty, says Mr Read. “Trust and transparency go both ways. Be honest about what you’re doing with your business and how things are going,” he explains. This includes talking about cashflow, as the dealer may be able to help with credit or extended payments. Contractors should challenge their dealers on service level agreements, to be sure of what they are getting. And it’s always worth asking for figures and testimonials to back up claims of good service, he warns. “Practice some due diligence.”
Buy or rent?
A big repair bill could cripple a new contractor in their first year, and renting means that any mechanical or technical fault is the responsibility of the dealership. “We always encourage new contractors to rent new machinery as they can change their mind and purchase later. But do get the rental agreement in black and white.” Any purchasing decisions should be made with the advice of an accountant, warns Mr Read. “When new to contracting, finance can be the weakest point.”
Contractors often need specialist insurance to ensure they’re covered for accidents, thefts or fires, according to Chris Walsh, farm insurance specialist at NFU Mutual. “Safeguarding income is also important, especially for contracting businesses which generate significant income during harvest and cannot risk having machinery out of action.”
The first consideration is property insurance which protects equipment, machinery and fuel. “As your business grows, ensure you have your property valued correctly to avoid under-insurance.” Public liability is also key. “The risk of injury and third-party property damage can increase as contractors often work long hours on unfamiliar farms. Consider extensions that cater for risks like planting of incorrect seeds or damage that could result in the loss of a BPS or Environmental Stewardship payment.”
As your business grows, ensure you have your property valued correctly to avoid under-insurance.
A legal requirement for most businesses is employer’s liability insurance, even if employees are family members or seasonal workers, says Mr Walsh. “It protects a business and its employees if they are injured or become ill due to their work.” It’s also advisable to put a risk management plan in place to ensure compliance with health and safety regulations. “This shows insurers that businesses are efficient and safe – something that will be considered when premiums are calculated.” It may also be worth having business interruption cover to pay for hiring a machine if your own is damaged, and consider loss of income cover too, he adds.
CASE STUDY: Be proactive, advise your clients
Tom Robinson set up a contracting business after returning home from studying, when he realised that the family farm was unable to support him and his parents. After 10 years he now works across 162ha, buying and spreading 30,000t of chicken muck across South West England.
Having a good team makes all the difference to a successful contracting business. “A driver will have his own tractor, tanker and spreader – that way they tend to look after them better,” says Mr Robinson. He also offers a bonus if his employees hit a target tonnage or bales in a day. Sunday is a day off for everyone and Mr Robinson uses little motivations or fines to look after his staff and improve efficiencies.
“It’s about managing people and finding out their strengths and weaknesses. I want to retain staff and customers like seeing the same driver.” Juggling different jobs can be hard, so Mr Robinson tries to do a weekly plan. “Reliability is how we pick up customers. Work with other contractors if you need to – there’s enough work to go around.”
As Mr Robinson had previous connections with poultry litter suppliers, he approached farmers directly to see if there was interest in using it. “I tried to get it into areas that didn’t have access to it. Now I have people ringing me.”
He has since expanded to take on sewage digestate, biosolids and farmyard manure. It’s important to be able to advise clients on their system, and be proactive, says Mr Robinson. “If you know a customer will be due some work, phone them.”
Most of Mr Robinson’s spreading jobs are within an hour’s travel, but if a farmer wants a large order or is willing to pay increased transportation costs, he will travel further.
He also does cereal contracting within a 25-mile radius of the home farm, drilling 200-240ha of crops, combining 40ha and doing mowing, baling and silage wrapping.
Mr Robinson charges by the tonne for muck and digestate jobs, with anything else charged by the hour or acreage. He charges a premium price because he offers a top service, with the right kit and sufficient capacity. “I need the best kit to do the job properly and I can then charge a slight premium,” he explains.
“Most of the kit is bought new and will be paid for within a few years.” He generally keeps tractors for 6,000 hours and everything is on an extended warranty so he knows the running costs of each machine, with most maintenance done in-house.